Privatization in Europe: West and East Experiences.

Gronberg, Timothy J.

The political and economic reform movement in Eastern Europe has provided economists with a remarkable opportunity for major social experimentation. The "what ifs" which have intrigued comparative systems researchers are now potential realties, and academic arguments have become hot applied policy debates. In this volume, Targetti has compiled a series of essays on theoretical and applied issues concerning the process of privatization. Most of the papers were presented at the Conference of the European Association for Comparative Economic Systems held at Trento University in 1991. Others were commissioned post-conference.

The authors, who are almost all based in Europe (both Western and Eastern), bring a variety of perspectives to the exercise. Both academic economists and government economists are included among the writers.

The book is divided into four sections. Parts I and II both deal with broad issues concerning the relative roles of the State and the private sector in Eastern Europe. Part III provides analysis of the privatization experiences in France and England. Part IV includes more narrow, case-specific discussions of privatization in Czechoslovakia and Hungary.

The three papers in the opening section discuss some generic issues in both the positive and the normative analysis of economic systems. Robin Marris identifies five stereotype economic systems and provides a listing of potentially relevant and distinguishing characteristics of each system type. The chapter reads like the outline of a set of lecture notes, with little in the way of clarifying discussion. Roberto Tamborini brings a Simon/Hayek perspective on the impact of restricted rationality, imperfect information and knowledge, and residual uncertainty on the establishment of market relationships as well as upon the functioning of established markets. An elementary and somewhat dated discussion of private market sector failure and public sector failure is provided by Alastair McAuley. The suggested lessons for privatization in this article, i.e., create contestable markets, beware of potential private market failure, beware of potential public sector failure, are too broad and too trite to be of much value in the privatization debate.

The second set of four papers presents a variety of proposals for privatization in Eastern Europe. The best of these papers, written by Frydman and Rapaczyhski, discusses the relative merits of privatization via asset sales and privatization via asset giveaways. Political realities, they argue, will necessitate that a substantial number of state enterprises be given away. They propose the creation of temporary intermediary financial institutions to facilitate the transition via such asset transfers from a command to a private property economy. Papers by Bicanic and Skreb and Lombardini both see a significant continuing role for the state in both the transition process to a market economy and in the steady state "mixed" economy. Particular concerns about "monopoly problems" arising in the privatized economy are voiced, and a belief in the need for state intervention to combat monopoly evils is expressed. More sweeping concerns about privatization lead Branko Horvat to argue for the transformation of state firms into the form of social corporations. The arguments in favor of this cooperative organizational form are not particularly persuasive, but the appearance of sensibility of such a proposal as a middle ground may, unfortunately, make it popular.

The French and English experiences with privatization are visited in the third section of the book. Wladimir Andreff characterizes the French privatization as a success and attributes the positive results to the decision of the French government to privatize via an (underpriced) tender pricing approach to a designated and diversified initial set of shareholders. Andreff does not believe that the French experience can be duplicated in Central/Eastern Europe. Among reasons cited for nonduplication are the lack of extant stock markets, limited savings, inadequate banking systems, and a lack of entrepreneurship. Redor focuses upon the role of the institutional and regulatory environment on the evolution of French public firms during the 1980s. He finds a convergence of public firm behavior to competing private firm behavior over the period. The lesson for Eastern European privatization is that state decisions about the structural environment may play a larger role in impacting firm behavior than decisions about conferring public or private status to firms. Will Bartlett provides an interesting account of the Thatcher experiments in quasi-markets (public financing with private provision). The discussion of contract design, both in principle and in practice, within the quasi-market context is particularly useful. There is, however, no explicit attempt to relate the British experience to the Eastern European transition.

The final section of the book is intended to assess the early evidence from transitions in, primarily (then) Czechoslovakia and Hungary. With the possible exception of the paper on Hungary by Voszka, I found the last set of papers to be quite disappointing. Claims and assertions abound, but there is little in the way of careful assembling and analysis of evidence of successes or failures associated with in-process privatization experiments.

Overall, I found this book to be longer on identifying difficulties in implementing privatization programs than in offering solutions. Although the essays are decidedly uneven in quality, there are very nice sections which will challenge and provoke the reader's thinking about the market reform process.

Timothy J. Gronberg Texas A&M University